Exall Energy Corporation

Exall Energy Corporation

January 29, 2007 15:50 ET

Exall Energy Obtains Disinterested Shareholder Consent to the Acquisition of Kingsmere Exploration Ltd. and a Concurrent Financing

TORONTO, ONTARIO--(CCNMatthews - Jan. 29, 2007) - Exall Energy Corporation ("Exall Energy") is pleased to announce that, as required by the conditional listing letter of the Toronto Stock Exchange (the "TSX"), it has obtained the consent in writing of a majority of its shareholders (the "Shareholder Resolutions") to the terms of (i) the acquisition (the "Kingsmere Acquisition") of Kingsmere Exploration Ltd. ("Kingsmere"), a private oil and gas exploration corporation, and (ii) a concurrent financing of up to $5,000,000 through the issuance of debentures convertible into Units (as hereinafter defined) and a separate flow-through common share offering (the "Financing"). The terms of the proposed Kingsmere Acquisition and the Financing were previously announced in a press release of Exall Resources Limited dated December 5, 2006.

The Exall Energy shareholders were asked to confirm that, in the event that a meeting of shareholders was called for the purposes of considering the Shareholder Resolutions, they would vote in favour of such resolutions. Consents were completed and returned to Exall Energy by shareholders holding a total of 8,492,628 common shares, representing approximately 50.3% of the 16,890,761 issued and outstanding common shares of Exall Energy. No new control person will be created by the completion of either the Kingsmere Acquisition or the Financing.

In accordance with the terms of the conditional approval letter of the TSX, this press release is being issued to announce that shareholder consent has been obtained with respect to the terms of the Kingsmere Acquisition and the Financing, and that the shareholders have authorized Exall Energy to proceed with both the Kingsmere Acquisition and the Financing. It is expected that the Kingsmere Acquisition will be completed on January 31, 2007 and that the Financing and the listing of the common shares of the Corporation on the TSX will be completed shortly thereafter.

Kingsmere Acquisition

In accordance with the terms of Kingsmere Acquisition, which is anticipated to be completed no later than January 31, 2007, Exall Energy has made an offer (the "Offer") to the holders of all of the issued and outstanding shares and share purchase options of Kingsmere to acquire 100% of such shares and options. Each shareholder of Kingsmere tendering shares under the Offer shall receive 1.48 common shares of Exall Energy per Kingsmere share tendered and each option holder of Kingsmere tendering share purchase options under the Offer shall be issued an option to acquire 1.48 common shares of Exall Energy per Kingsmere share issuable pursuant to any Kingsmere options so tendered. Shareholder approval was required for the Kingsmere Acquisition as the total number of common shares to be issued in connection with the transaction will be 10,859,251 which number exceeds 25% of the total issued and outstanding capital of the Corporation at the time of the Kingsmere Acquisition. Upon successful completion of the Kingsmere Acquisition, the directors of Exall Energy have agreed to appoint Roger N. Dueck, the founder of Kingsmere, to the Board of Directors of Exall Energy.

The Offer may be terminated by Exall Energy, in its discretion, should less than sixty six and two-thirds percent (66 2/3%) of each class of issued and outstanding shares of Kingsmere (on a fully diluted basis) not be tendered under the Offer. As of today's' date in excess of 90% of Kingsmere's shareholders have tendered to the Offer.

In completing the Kingsmere Acquisition, Exall Energy will be acquiring two main properties of Kingsmere as follows:

Mitsue - Alberta

The property (the "Mitsue Property") is located in the Mitsue area of Alberta approximately 300 kilometres northwest of Edmonton. The Mitsue Property is Kingsmere's primary property, producing approximately 62 boe/d (barrels of oil equivalent per day) of light oil, representing approximately 90% of Kingsmere's total production volumes.

Kingsmere's property interests in Mitsue consist of working interests ranging from 30% to 49% and averaging 43% (reserves volume weighted). Kingsmere has an interest in three producing oil wells (1.2 net), four water injection wells (2.9 net) and five shut-in wells (3.1 net), and operates twelve wells associated with this property. In addition, Kingsmere has an average 72% working interest in an operated fresh water pipeline and associated injection facility.

All of the on stream production is produced to single well batteries and trucked to a central treating and water disposal facility. Kingsmere operates all of its production in the Mitsue area.

The Mitsue Property consists of 1120 gross (547 net) acres of developed land and 5120 gross (3263 net) acres of undeveloped land.

A September 1, 2006 report prepared for Kingsmere by AJM Petroleum Consultants (the "AJM Report") attributes proved plus probable reserves of 377 mboe to the working interests now held by Kingsmere in the area.

Bow Island - Alberta

The property (the "Bow Property") is located in the Bow Island area of Alberta approximately 50 kilometres east of Lethbridge. The Bow Property produces approximately 7 boe/d of medium-heavy oil, and represents approximately 10% of Kingsmere's total production volumes.

Kingsmere's property interests in Bow Island consist of a 40% working interest in one operated producing oil well and associated land interest. Kingsmere's on stream production is produced to a single well battery and trucked to a central treating and water disposal facility. Clean oil is trucked to the Milk River Terminal.

The Bow Property consists of 40 gross (16 net) acres of developed land and 320 gross (85 net) acres of undeveloped land.

The AJM Report attributes proved plus probable reserves of 25 mboe to the Applicant's working interest in the area.

In addition, selected financial information for Kingsmere is set out below and is based on and derived from the financial statements of Kingsmere for the unaudited 12-month period ending December 31, 2005, with comparative figures for the unaudited 12-month period ending December 31, 2004:



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Statement of Operations 12-Month Period Ended 12-Month Period Ended
Data December 31, 2005 December 31, 2004
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Total Revenues $1,715,240 $1,840,212
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Total Expenses $1,045,565 $1,418,461
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Net Income / (Loss) $(36,307) $(486,211)
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Balance Sheet Data
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Total Assets $5,434,762 $4,027,127
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Long-Term Debt Nil Nil
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Total Liabilities $2,602,864 $1,528,279
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Share Capital 3,333,517 2,972,653
Shareholders' Equity
(Deficit) $(706,418) $(670,111)
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The Financing

Exall Energy has entered into an engagement letter dated November 6, 2006, as amended (the "Engagement Letter") with D&D Securities Company and Canaccord Capital Corporation (collectively, the "Agents") providing for the offering by way of private placement (the "Financing") of up to a total of $5,000,000 in 5% unsecured convertible debentures ("Debentures") and flow-through shares (each a "Flow-Through Share") of Exall Energy with the Flow-Through Shares being offered at a price of $0.60 per Flow-Through Share. The Debentures will be convertible into units (each a "Unit") being comprised of one (1) common share (each a "Common Share") in the capital of Exall Energy and one-half ( 1/2) of a Common Share purchase warrant, with each whole Common Share purchase warrant entitling the holder thereof to acquire a further Common Share of Exall Energy for a period of 12 months at an exercise price equal to 125% of the market price on the TSX on the date of Conversion or Forced Conversion (as hereinafter defined). Interest on the Debentures will be payable at the rate of 5% per annum calculated semi-annually in arrears, with interest payable at the time of Conversion, Forced Conversion or if not subject to Conversion or Forced Conversion (as those terms are defined below), at the end of the term. Interest may be payable in cash or in Common Shares, subject to receipt of required regulatory approvals in the case of Common Shares. Shareholder approval was required for the Financing as (i) the total number of common shares which could be issuable in connection with the Financing could be up to 12,500,000 (including any common shares issuable to the Agents in connection therewith), if fully subscribed, which number would exceed 25% of the total issued and outstanding capital of the Corporation at the time of the Financing, and (ii) the pricing of the Units issuable on Conversion or Forced Conversion of the Debentures and the pricing of the Flow-Through Shares are being made prior to the listing of the common shares of the Corporation on the TSX.

Each $1,000 of principal amount of Debentures will be convertible at the holder's option (the "Conversion") into Units at a conversion price equal to the greater of: (a) the weighted average trading price of the Common Shares on the TSX for the first five consecutive days of trading less the maximum allowable discount under TSX rules; or (b) $0.60 per Unit. Notwithstanding the foregoing, the Debentures may be automatically converted by Exall Energy at any time prior to the end of the one year term thereof and after the Common Shares of Exall Energy have traded on the TSX for 10 consecutive trading days at a conversion rate equal to the weighted average trading price for the Common Shares for the 10 day period immediately preceding the date on which notice of such conversion is provided by the Corporation to the Purchaser ("Forced Conversion"). The number of Common Shares to be issued or reserved for issuance under the terms of the Financing exceeds 25% of Exall Energy's currently issued and outstanding common shares, and consent was also received through the Shareholder Resolutions to exceed this threshold as required under TSX rules.

The proceeds from the Debentures sold under Financing will be used for general working capital purposes and the gross proceeds of the Flow-Through Common Shares sold under the Financing will be used for Canadian Exploration Expenses (within the meaning of the Income Tax Act (Canada)) related to the exploration program of Exall Energy. Exall Energy will renounce such Canadian Exploration Expenses with an effective date of no later than December 31, 2007.

The Agents will be paid a cash fee equal to 6% of the gross proceeds raised in the Financing and brokers' warrants, exercisable into Units, equal to 6% of the number of Flow Through Common Shares sold and 6% of the maximum number of Units issuable on the Conversion or Forced Conversion of the Debentures. Under the terms of the Shareholder Resolutions, insiders of the Corporation will be permitted to participate in the Financing, but in no event will they be permitted to acquire greater than 10% of the Debentures or Flow-Through Shares to be offered pursuant thereto. It is expected that the Financing will close in early February.

Contact Information

  • Exall Energy Corporation
    Frank S. Rebeyka
    President and CEO
    (403) 213-4495
    Website: www.exall.com